Summary of Key Points
China's installed capacity of new energy sources (wind and solar power) has exceeded 1.8 billion kilowatts, but it faces challenges such as difficulties in connecting to the grid, limited consumption, and delayed subsidies, which are forcing a market-oriented reform of electricity prices. In 2025, the state issued Document No. 136, requiring that all new energy electricity be fully involved in market transactions by the end of the year (with both volume and price being determined by the market). Local authorities have shifted from setting fixed electricity prices to re-establishing market rules, leading to significant regional differences in electricity prices. Marketization brings opportunities such as increased value and more stable revenues for companies, but it also presents challenges like price volatility and higher capacity requirements. Companies need to adapt through digitalization and long-term contract agreements.
Why Marketize New Energy Electricity Prices?
The main goal is to solve existing problems by letting market forces determine electricity prices. Previously, new energy electricity prices were fixed, with government subsidies. However, as the installed capacity increased, various issues arose, such as difficulties in connecting power to the grid, insufficient consumption, and long delays in receiving subsidies, resulting in financial losses for companies. Therefore, Document No. 136 was introduced to make new energy electricity more like a commodity, with prices determined through market negotiations between buyers and sellers rather than by the government.
When implementing these policies, local authorities have not only clarified the price ranges for both existing and new projects but also detailed rules for bidding, trading green energy, and integrating energy storage systems. Some regions have even included new energy in the real-time electricity trading "spot market," making prices more flexible.
Why Are There Such Large Differences in Electricity Prices Between Regions?
The differences in prices are influenced by factors such as existing capacity, new additions, demand, costs, and competition:
- Existing Projects: The eastern and southern regions (Guangdong, Zhejiang, Shanghai) have higher electricity prices (0.4-0.46 yuan per kilowatt-hour). This is due to high electricity consumption in these areas (e.g., from the tertiary industry and advanced manufacturing) and the need to support the demand for green energy from power-consuming sectors like data centers and AI, while also encouraging further investment in new energy.
- New Projects: The price differences between regions are even greater. In Shandong, Heilongjiang, and Gansu, the lower bid prices for solar projects range from 0.11-0.2 yuan per kilowatt-hour, close to the cost of coal-fired power, as the cost of generating new energy has decreased, making competition more intense. In coastal areas like Guangdong and Hainan, however, the higher costs of offshore wind power and transmission challenges result in higher bid prices for new projects.
What Benefits Does Marketization Bring to New Energy Companies?
Marketization offers several advantages:
1. Greater Profitability: With market-based pricing, companies can earn more by accurately predicting peak electricity demand (e.g., selling electricity at higher prices during summer when air conditioning usage is high).
2. More Stable Revenues and Easier Financing: Long-term power purchase agreements (e.g., 5-year contracts with data centers) provide stable cash flows, making it easier to obtain loans from banks.
3. Price Protection: During the transition period, a "price difference settlement" mechanism ensures that companies do not suffer significant losses if market prices are too low.
4. Greater Value of Green Energy: Green energy certificates can now be sold for profit, recognizing the environmental benefits of new energy and enhancing competitiveness in international trade.
5. Favoritism for Better Companies: Small companies that rely on subsidies may be eliminated, while larger, technologically advanced firms with better management skills will gain more orders and opportunities to collaborate with major customers.
Are There Any Disadvantages of Marketization?
While marketization has benefits, it also brings challenges:
1. Price Volatility: Fluctuating market prices can lead to unstable revenues, especially for companies that rely on wind or solar power, which are affected by weather conditions.
2. Higher Capacity Requirements: Companies need to have the capability to predict and manage electricity demand and supply accurately, as well as to use advanced technologies for efficient operation and storage.
3. Potential Drop in Green Energy Certificate Prices: An oversupply of green energy certificates could lower their value, and changing policies increase regulatory risks.
4. Pressure on Small Companies: Marketization requires companies to have digital capabilities and energy storage systems; those without these may face consolidation or elimination.
How Can Companies Adapt?
To thrive in the new market environment, companies can take the following approaches:
1. Leverage Digitalization: Invest in AI and big data for accurate power generation and price forecasting, and use virtual power plants to optimize operations.
2. Sign Long-Term Contracts: Enter into long-term agreements with major customers to lock in revenues and balance risks.
3. Reduce Costs: Improve equipment (wind turbines, solar panels) and reduce maintenance costs to increase efficiency and minimize waste.
4. Offer Comprehensive Services: Sell not only electricity but also green energy solutions to add additional value.
5. Collaborate with Larger Companies: Larger firms can acquire smaller ones to expand their capabilities, while smaller companies can join alliances or virtual power plants to enhance resilience.
In summary, the marketization of new energy electricity prices is an inevitable trend. Companies must adapt to these changes and improve their competitiveness to survive and profit. For consumers, this means that green energy may become more widespread, but electricity prices will likely be more variable, with higher prices during peak demand periods and lower prices during off-peak times.